An Economic Theory Of The Fourth Hurdle

Third party payers' decision processes for financing health technologies (‘fourth hurdle’ processes) are subject to intensive descriptive empirical investigation. This paper addresses the need for a theoretical foundation of this research and develops a theoretical framework for analysing fourth hurdle processes from an economics perspective. On the basis of a decision‐analytic framework and the theory of agents, fourth hurdle processes are described as sets of institutions to maximize the value derived from finite healthcare resources. Benefits are assumed to arise from the value of better information about and better implementation of the most cost‐effective choice. Implementation is improved by decreased information asymmetries and better alignment of incentives. This decreases the effects of ex ante and ex post moral hazard on service provision. Potential indicators of high benefit include high costs associated with wrong decisions and large population sizes affected by the decision. The framework may serve as a basis both for further theoretical work, for example, on the appropriate degree of participation as well as further empirical work, for example, on comparative assessments of fourth hurdle processes. It needs to be complemented by frameworks for analysing fourth hurdle institutions developed by other disciplines such as bioethics or law. Copyright © 2012 John Wiley & Sons, Ltd.